NO.PZ201805280100000402
问题如下：
The Fordhart portfolio has a market value
of $2 billion. After his annual meeting
with its investment committee, DuBord notes
the following points:
■ Fordhart must spend 3% of its
beginning-of-the-year asset value annually to meet legal obligations.
■ The investment committee seeks exposure
to private equity investments and requests that DuBord review the CFQ Private
Equity Fund as a potential new investment.
■ Enrollment is strong and growing, leading
to increased operating revenues from tuition.
■ A recent legal settlement eliminated an
annual obligation of $50 million from the portfolio to support a biodigester
used in the university’s Center for Renewable Energy. \
DuBord instructs his second junior analyst
to formulate new allocations for
Fordhart. This analyst proposes the allocation presented in Exhibit 2.
Discuss two reasons why the proposed asset
allocation is inappropriate for Fordhart.
选项：
解释：
The proposed asset allocation for Fordhart
is inappropriate because:
1 Given the increasing enrollment trends
and recent favorable legal settlement, Fordhart will likely require lower
liquidity in the future. The proposed allocation shifts Fordhart’s portfolio
away from risky assets (decreases the relative equity holdings and increases
the relative bond holdings).
2 The proposed 10% allocation to private
equity creates an overly concentrated position in the underlying investment. A
10% allocation to the CFQ Private Equity Fund is $200 million (10% of
Fordhart’s $2 billion). The CFQ Private Equity Fund has assets under management
(AUM) of $500 million. Hence, Fordhart would own 40% of the entire CFQ Private
Equity Fund. This position exposes both Fordhart and the CFQ fund to an
undesirable level of operational risk.
- a large foot print for the CFQ Private Equity Fund. as the fund size is 0.5b, and the proposed allocation will allocate 10%of the total market value(2b), which means allocate 0.2 billion in the single PE fund, do not well diversify within the alternative asset class. as Fordhart has 2 billion market value, view as a large asset class, it can allocate in PE about 10%, but, need to diversify in PE section.
- as the endowment is strong and growing, also recent legal settlement eliminated an annual obligation of 50 m from the portfolio, Fordhart has relative low liquidity needs and above average risk tolerance, so, it donot need to allocate 59%in investment-Grade Bond. it will be better for the endowment to invest more in Equity or alternatives to generate more potential return.